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Welcome to the Inaugural Issue of Cabot Money Club Stock of The Month

Each month, in this advisory, we will be spotlighting a new recommendation from one of our Cabot experts. We will include an interview with the analyst and bring you his or her latest thoughts on the stock we pick as well as a summary of the analyst’s expertise and experience.

We will also include a brief market update, and a longer piece highlighting the macro industry—the pros and the cons—in which our stock pick resides.

And as is usual with our Cabot advisories, we will maintain a portfolio of our stock picks, to give you a one-shot picture of our holdings.

Welcome!

There are a lot of attractive income-generating funds out there, with enough variety to meet everyone needs.

There has clearly been abnormal selling in many of the higher-quality income names in the market.

October proved to be a challenging month for stocks, but one good thing came out of it—it helped me identify stocks that investors really want to own!

The S&P 500 and the Nasdaq just made new all-time highs. Strong earnings and a booming economy are outweighing concerns about the delta variant, the Chinese slowdown, inflation and a Fed tapering of bond purchases.

It’s difficult to say what narrative will be dominant after the summer. The cyclical slump could gain traction or turn around. Much will depend on the headlines, which are unpredictable. While I like the way the current portfolio is positioned, it needs more stocks with momentum that generate high call premiums.



In this issue I highlight for purchase one of the very best financial stocks on the market. Prospects are dazzling over the rest of this year. But the stock is also moving right now. It should offer a quick opportunity to ring the income register with a covered call.

Despite last week’s overreaction to the Fed, the market will likely continue sideways for a while for two reasons. One, the market indexes had to take a breather after a massive 90% move higher from the pandemic lows. Two, investors look ahead and can’t decide what will drive the market six months from now after the economy slows and comparisons get tough.

In a sideways market, income is at a premium. Income is the only game in town when stock prices aren’t rising. Dividends roll in regardless of near-term market gyrations. Covered calls greatly enhance that income.



In times like this, a portfolio geared towards high income can provide strong returns while the overall market languishes. In this issue, I highlight two new covered call opportunities that will enable you to ring the register while the market wallows.

In what has been a basically good market this year, investors just got a dose of bad news. Inflation isn’t going down enough, even with the current high rates. That makes the rate cut “Holy Grail” far less likely anytime soon.

The Fed will have to at least keep interest rates at a very high level to prevent inflation from reigniting. But at some point, the Fed will need to lower interest rates in order to keep the recovery alive. But they can’t, at least to an impactful degree. Historically, inflation tends to come right back when the Fed takes its foot off the gas.

The bull market is now two years old and shows no signs of stopping.

Since the bear market low in October of 2022, the S&P 500 has risen more than 60%. It has been powered by the artificial intelligence catalyst, a surprisingly resilient economy, and the peaking of interest rates. Overall earnings are projected to be strong, and the market could get a further boost from AI-specific earnings this quarter.

The market has regained its footing. After a 5% pullback in the earlier part of April, the S&P 500 has since regained nearly all that was lost, and the index is within bad breath distance of the high.

Earnings have been good. With 92% of S&P 500 companies having reported, earnings increased an average of 5.4% over last year’s quarter. But it’s better than that. If you take out the report of Bristol-Myers Squibb (BMY), average earnings growth would be 8.3% for all the other stocks on the index. That’s a healthy gain.

The market seems to have regained its footing since the selloff last week. It’s still flat for the month of July, but it isn’t down, which is encouraging.

Technology hit a snag with bad news from China. We’ll see if earnings can overcome that weakness as the AI catalyst comes front and center again. But the bigger story in July was the broadening rally. An improving interest rate prognosis prompted a strong rally in the previously beleaguered interest rate-sensitive stocks in REITs and utilities.

Isn’t this fun? The market gave us whiplash last week. The crash last Monday was the worst day for the market in years. It seemed like the sky was falling. But investors sobered up and the market closed flat for the week.

The tumult of last week was just a noisy road to nowhere. But the market also again showed great vulnerability to negative headlines. And while all that recession talk last week seems to have been clearly overblown, a recession is on the radar now. The market is resilient as usual. But don’t get too comfortable.

What recession? After a terrible start to August, the market has completely turned around. The S&P 500 has moved 7.5% higher since August 5 and is again near the high.

The recession fears that contributed to the worst day for the market in over a year were overblown. And numbers have come out since that indicate a recession is unlikely any time soon. But the Fed is still expected to start slashing rates next month. It looks like we will still get the rate cuts without a recession. The market loves it.

Cannabis legalization is spreading but cannabis stocks are trading near all-time lows, which leaves these four industry leaders poised for a rebound.

Earnings season is over, and the market’s main focus is on the February inflation numbers that come out this week.

Stocks were able to continue to build on last year’s late rally in January and February. Mixed Fed and interest rate news was overcome by strong earnings, particularly in technology. Signs that artificial intelligence is continuing to drive strong demand and sales lifted the sector and the market.

The market got a reprieve last week. But we’re probably not out of the woods yet.

The S&P 500 came about as close to a bear market as you can get early last week. In fact, it hit the 20% mark down from the high on an intraday basis twice. But it’s not an official bear market until the closing price falls below 20%. The S&P seemed to have one foot on a bear market and the other foot on a banana peel. Then last Wednesday happened.

In this week’s review, Mike discusses the three patterns he hunts for when looking for new buys and shares some of his top watch-list candidates.

In this week’s video, Mike talks about the vibrant market for growth stocks and the good performance for the overall market.

Like most consumer industries, residential housing construction is declining sharply in the wake of the Covid-19 shutdown. The industry’s recovery, which was accelerating at the beginning of the year, is now reversing rapidly.

In this issue, we review five homebuilders whose valuations appear to overly discount the industry’s recovery prospects.